IRS gearing up for audits of nonqualified deferred-pay plans.(Internal Revenue Service)(Brief article)

Kiplinger Tax Letter, The, April, 2006

IRS is gearing up for audits of nonqualified deferred-pay plans.

Agents will target execs' 2005 returns, hunting for violations of the new rules for salary deferred after 2004. Under those regulations, if deferred funds can be accessed too easily before retirement, the funds will be taxed on the date they vest, not when later paid to the employee.

Meanwhile, ongoing exams of executives are bearing fruit for IRS.

Agents are zeroing in on severance packages because examinations are uncovering a host of violations. Firms are failing to report payments for administrative support as income and are ignoring the 20% excise tax and deduction limitations on big severance packages in corporate mergers.